Filling DC’s newest revenue hole

Just a few years ago, the Chief Financial Officer’s “quarterly revenue forecast” was something DC officials looked forward to because boom times meant surplus money to spend. Now that we’re in a recession, the forecasts are increasingly gloomy because falling tax revenue causes budget shortfalls. And when that happens, Mayor Fenty and the Council must find cuts or revenue increases to close the deficit.

The just-released June revenue forecast shows a new $190 million shortfall for this fiscal year and $150 million for 2010. Over the past year, projected 2010 revenues have dropped nearly $1 billion, making this fiscal crisis one of the worst in DC’s home-rule history. With unemployment and food stamp rolls at record levels, it’s a major economic crisis for families, too.

As DC’s CFO notes, there is only one real choice for addressing the 2009 shortfall: tapping DC’s $330 million rainy day fund. With fiscal year 2009 nearly three-fourths over, there are no realistic budget-cutting options. Even if the police and fire departments, libraries and parks were shut down entirely for the next 3 months, we wouldn’t save enough. And it is too late to quickly implement tax or fee increases.

Drawing from the rainy fund is not as easy as it should be, however. Congress created onerous rules a decade ago requiring the Districts to repay such withdrawals in a year. They since have relaxed repayment to two years, but that still is more restrictive than in nearly all states, which typically wait until their budgets return to surplus to replenish their rainy day funds. Considering that DC’s rainy day fund comes from local tax dollars – not a penny of federal funds – the Congressional restrictions are maddeningly unfair.

So as the city taps the rainy day fund, DC leaders also need to make the very reasonable request that Congress eliminate the restrictive repayment rules.

That will get us only to September 30, the end of fiscal year 2009. What do we do after that? Over the past year, Mayor Fenty and the Council adopted numerous belt-tightening measures, but they were able to largely leave core services intact. They raised some revenues, but in pretty safe way, like parking enforcement. As the Mayor and Council face a new shortfall — that could get even bigger — they are likely to have make some unpopular choices to cut real services and raise revenues. Doing so in a way that protects our most vital services, particularly for residents suffering from the economic downturn, will be their challenge.

Ed Lazere is the Executive Director of the DC Fiscal Policy Institute, which conducts research and public education on budget and tax issues in the District of Columbia, with a particular emphasis on issues that affect low- and moderate-income residents.